US economy is the least entrepreneurial in decades

Entrepreneurism in American has been on the decline for at least 30 years, a new report suggests, and for the first time in three decades the number of business “deaths” in the United States exceeds that of “births.”

The report, published on Monday this week by
economists from the Brookings Institute, examines business
dynamism in America — or how the process by which firms are
continually born, fail, expand and contract — during the years
1978 through 2012.

“Research has firmly established that this dynamic process is
vital to productivity and sustained economic growth,” Ian
Hathaway and Robert E. Litan wrote for the think-tank, adding,
“Entrepreneurs play a critical role in this process, and in
net job creation.”

“But recent research shows that dynamism is slowing
down,” they continued. “Business churning and new firm
formations have been on a persistent decline during the last few
decades, and the pace of net job creation has been subdued.”

Indeed, the economists’ research indicates that for the first
time since the US Census Bureau began examining firm entry and
exit rates in the US during the late 1970s, more companies are
failing then being formed.

What’s more, though, is that this trend is nothing new,
relatively speaking, and is evidenced across the board: according
to Hathaway and Litan, business dynamism in America has been on
the decline for decades, and is noticeable from coast-to-coast
and in all 50 states.

Only lately, however, have business “deaths” exceeded “births,”
the economists wrote, albeit only slightly. Nevertheless, neither
Hathaway nor Litan are exactly sure what could be done to reverse
that trend.

“Productivity growth has been fairly decent, roughly around 2
percent," Litan told The Daily Ticker this week. "But in order
to really get high growth in the future ... we're going to need a
lot faster rate of new firm formation and more willingness by
employers and individuals to move from areas or from jobs that
are not growing to areas in the economy where jobs are
growing."

One way that could be accomplished, his report suggests, is to
make it easier for job-hungry immigrants to enter the US to gain
legal employment. Nevertheless, Litan added to the Daily Ticker
that, despite extensive researcher, the economist said it’s
“very puzzling” that American dynamism is on the
decline.

“Perhaps the best and most immediately effective way to do
this is to significantly expand the numbers of immigrant
entrepreneurs granted permanent work visas to enter and remain in
this country,” the report reads. “Allowing foreign
graduates of US schools who concentrate in the so-called STEM
fields (science, technology, engineering and math) to remain in
the United States to work for other enterprises is also an
imperative, especially given the historical pattern indicating
that immigrants are twice as likely to launch businesses as
native-born Americans.”

“That is scary,” Entrepreneur.com writer Ray Hennessey
chimed in, “because we already know that there are signs that
American worker is too discouraged to get a job, with the labor
force participation rate at the lowest level since the Carter
Administration.”

And as RT reported earlier this week, nearly 102
million working-age Americans in fact do not have work — and most
of them are not even looking.

With regards to why jobs aren’t as easily obtainable, however,
the Brookings economists are still looking for an answer.

“Our findings stop short of demonstrating why these trends
are occurring and perhaps more importantly, what can be done
about it. Doing so requires a more complete knowledge about what
drives dynamism, and especially entrepreneurship, than currently
exists,” the report continues. “But it is clear that
these trends fit into a larger narrative of business
consolidation occurring in the US economy — whatever the reason,
older and larger businesses are doing better relative to younger
and smaller ones. Firms and individuals appear to be more risk
averse too — businesses are hanging on to cash, fewer people are
launching firms and workers are less likely to switch jobs or
move.”